Johannesburg - South Africa’s business confidence fell further into depressed territory in the final quarter, reaching its lowest level in five years, while annual headline producer inflation in October surprised on the upside by rising higher than market expectations.
The Rand Merchant Bank (RMB)/Bureau for Economic Research (BER) business confidence index released yesterday shows business sentiment retreated further in the fourth quarter of the year, reaching its lowest level in five years as activity in the retail, new vehicle trade and manufacturing sectors slowed.
The survey, which is compiled by the BER, shed two points to 36, bringing its total losses over the past year to 15 points.
That the index fell by only two points despite underlying activity in sectors – such as retail, new vehicle trade and manufacturing – weakening by more than it had done in the third quarter was very surprising, RMB said.
“One explanation could be that some respondents have been relieved by conditions in the fourth quarter not turning (out) as bad as they had thought at the time of the survey (October 19 to November 16),” the survey said.
Mood lifted
It said another was the absence of load shedding in recent weeks, which might well have lifted the mood somewhat, particularly for energy intensive businesses.
Etienne le Roux, the chief economist at RMB, said in aggregate, growth of about 1 percent to 1.5 percent seemed like the most probable outcome for this year, with a very similar prognosis for next year at this stage.
Growth could be lower if the current drought ravaging South Africa worsened, he added.
Meanwhile, producer price inflation for final manufactured goods increased to 4.2 percent in October from 3.6 percent in September, according to data by Statistics SA. This was higher than the consensus for a 3.7 percent rise.
On a month-on-month basis, prices at the factory gate were up 0.9 percent compared with 0.3 percent in the previous month.
The Nedbank Economic Unit said producer prices should increase in the coming months as a result of rising food prices, but this was likely to be counteracted to some extent by other commodity prices, particularly fuel, which would be relatively subdued.
Rating agency Standard & Poor’s (S&P) said yesterday that South Africa was unlikely to face immediate credit downgrades that would rank the country’s debt junk at two ratings companies.
“Losing two investment-grade ratings, that could be very disruptive for markets and capital flows,” Konrad Reuss, S&P’s sub-Saharan Africa managing director, said at the 13th Annual African Capital Markets Conference in Cape Town yesterday.
Fitch Ratings has a negative outlook on its BBB assessment, indicating that it may downgrade the nation’s creditworthiness when it publishes its next review on December 4, the same day as S&P.
Fitch’s rating is in line with Moody’s Investors Service, which has a stable outlook on the debt, and one level above S&P. The nation’s “credit metrics are certainly not improving, but also they’re not going over a cliff”, Reuss said.
“The medium-term question for us is ‘do we have to change the outlook to reflect that’,” he added.
Emerging markets face another wave of ratings downgrades next year, with Brazil at risk of a cut to junk and the Africa/Middle East region potentially being given a “negative outlook”, Fitch Ratings’ top sovereign analyst said in an interview.
Mediocre growth
Depressed commodity prices combined with mediocre global growth and the approach of the first US interest rate rise in almost a decade were posing a threat to the ratings of developing countries, James McCormack, Fitch’s head of sovereigns, said.
The agency has cut the ratings of 12 commodity exporting emerging economies already this year, and 14 countries, including big names such as Brazil, Russia, South Africa and Nigeria, are currently on downgrade warnings – or negative outlooks in rating agency parlance. Next year looks likely to be a similar story. “I think that is a pattern we are going to continue to see into next year,” McCormack said.
“The Middle East and Africa are the regions that will see the most downgrades. We have never had these regions on negative outlook (where more than 20 percent of sovereigns have negative outlooks), but it is something we could do.”
* Additional reporting by Bloomberg
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